Netflix dropped 13.5% on Thursday despite the market's mega gains.
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The company's earningsmay have grown profit 34 percent from a year ago, beating analyst expectations.
But revenue fell just short of analyst forecasts and the company's average revenue per user declined 8 percent from the year-ago quarter.
Plus, investors were doing some profit taking: the company's stock had more than *doubled* since the beginning of the year though it was off highs in mid June. (Track Netflix Here)
The company's online video streaming option is a huge hit, but that's not helping its revenue. Digital streaming is included with even the cheapest of Netflix's subscription options, so that's what consumers are increasingly choosing. That's why average revenue per user has declined.
It also raises some questions about the long-term health of the company.
A number of high-level movie industry execs have recently raised questions about the longevity of Netflix's success.
Bottom line — the movie studios could jack up the prices they charge Netflix , which could cause a major problem for Netflix's bottom line. These Hollywood insiders tell me that while Netflix and the studios currently have a good relationship, the studios are willing to charge a lot more, in order to protect video-on-demand, and other higher-margin revenue. It's worth noting that the Netflix-movie studio agreements aren't locked in for a particularly long period of time.
Look for the next round of negotiations to put pressure on Netflix margins.
Plus, Netflix's streaming option will face some new competition from Redbox , which is expanding beyond the DVD kiosk business.
Redbox is developing its online strategy to take on Netflix head-on. Now that Redbox has resolved its lawsuits with the film studios, the door is open for Redbox to expand those relationships into the digital streaming space.Competition for streaming rights is a good thing for the movie studios, giving them another opportunity to charge more for those digital rights.
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